Special loans can help after a disaster

If your home has been ravaged by a natural disaster, a little-known government program can help you rebuild or buy an entirely new house to live in.

A Federal Housing Administration 203(h) mortgage requires no down payment and is available in the wake of all sorts of catastrophes: hurricanes, floods, tornadoes, earthquakes, landslides, mudslides, severe storms or tidal waves.

It's primarily intended to help families that must use all of the money from their insurance settlement to pay off the mortgage on the home that was destroyed, leaving little or nothing with which to start over.

But renters also can take advantage of this program to buy a single-family house if the residence they were living in was destroyed.

A 203(h) loan works like most FHA loans. The federal government guarantees your mortgage will be repaid, even if you default, making it easier to qualify with participating banks and mortgage companies.

You simply have to show that your income is high enough, and your debt-to-income-ratio low enough, to make the monthly payments.

To obtain that help you must:

Live in an area that the president has declared a national disaster.

Provide evidence that your home was damaged to the extent that reconstruction or replacement is necessary.

Apply within a year of the disaster.

You'll need virtually no cash to take advantage of the 203(h) program.

As we said, you'll need no down payment. This is one of the few ways left to get 100% financing.

You have to pay closing costs, but they can be financed -- that is, added to the loan amount.

The up-front mortgage insurance premium, a fee required by all FHA-insured loans, also can be rolled into the cost of the loan. That insurance, which is similar to private mortgage insurance, goes into a special fund used to pay lenders for losses they incur if an FHA-insured borrower defaults on the loan and the lender has to foreclose.

If you buy a new home, it doesn't have to be within the disaster area. So if you want to move out of an Iowa floodplain or away from the beach in Galveston, you can do so.

If so, you can apply for an FHA-backed loan from most banks and mortgage companies. Here's where to find FHA-approved lenders in your area.

Don't be surprised if those lenders are unfamiliar with the 203(h) program.

Every FHA-approved lender is authorized to offer 203(h) loans, according to Dale Gray, an administration spokesperson. But many don't know about the program until a disaster strikes and a customer asks and explains what it is.

Even months after a disaster, you may need to contact many lenders before you find one who understands the program and is willing to assist you.

If persistence and patience do not pay off, e-mail the FHA Resource Center at hud@custhelp.com or call 800-225-5342 for assistance.

Applying for an FHA loan doesn't disqualify you from seeking help from other state and federal programs.